perrigo fiscal 2012 first quarter conference call€¦ · quality, affordable healthcare products...

Quality, Affordable Healthcare Products

Perrigo Fiscal 2012 First Quarter Conference Call

October 27, 2011


Forward-Looking Statements

2

Certain statements in this presentation are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements relate to future events or the Company’s future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company or its industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or other comparable terminology. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the Company’s control. These and other important factors, including those discussed under “Risk Factors” in the Company’s Form 10-K for the year ended June 25, 2011, as well as the Company’s subsequent filings with the Securities and Exchange Commission, may cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements in this presentation are made only as of the date hereof, and unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


Gross Margin Q1 2012 Q1 2011 Change

31.4% 33.4% (200) bps

Operating Margin Q1 2012 Q1 2011 Change

14.0% 17.4% (340) bps

Perrigo Consolidated – GAAP Financials From Continuing Operations

3

($ in millions, except per share amounts)Q1 2012 Q1 2011 % Change Y/Y

Net Sales 725$ 641$ 13%Cost of Sales 498 427 16%

Gross Profit 228 214 6%Distribution 10 8 23%R&D 20 18 11%SG&A 96 76 26%

Operating Income 102 112 (9%)

Income from Continuing Ops 70$ 74$ (4%)Diluted EPS from Continuing Ops 0.75$ 0.79$ (5%)


31.7% 34.5%

37.2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Q1 2010 Q1 2011 Q1 2012

Perrigo Consolidated – Q1 FY 2012 Adjusted Financials* From Continuing Operations

4 *See attached financial schedule for reconciliation to GAAP numbers

Adjusted Gross Margin Q1 2012 Q1 2011 Change

37.2% 34.5% 270 bps

Adjusted Operating Margin Q1 2012 Q1 2011 Change

21.2% 19.2% 200 bps

17.4% 19.2%

21.2%

0%

5%

10%

15%

20%

25%

Q1 2010 Q1 2011 Q1 2012

Adj. Gr. Margin Q1’10-Q1’12 Adj. Op. Margin Q1’10-Q1’12

($ in millions, except per share amounts)Q1 2012 Q1 2011 % Change

Y/YChange as

a % to salesNet Sales 725$ 641$ 13%

Adjusted Cost of Sales 455 420 8%Adjusted Gross Profit 270 221 22% 270 bps

Distribution 10 8 23%Adjusted R&D 23 18 31%Adjusted SG&A 83 72 15%

Adjusted Operating Income 154$ 123$ 25% 200 bps

Adjusted Income from Continuing Ops 103$ 81$ 27% 150 bpsAdjusted Diluted EPS from Continuing Ops 1.10$ 0.87$ 26%


Net Sales Performance by Segment – Adjusted Financials* From Continuing Operations

5

($in millions) Q1 2012 Q1 2011 % Change Y/Y

Consolidated Perrigo Adjusted Operating Income

$ 725 154

$ 641 123

13% 25%

Consumer Healthcare Adjusted Operating Income

412 67

396 73

4% (9%)

Nutritionals Adjusted Operating Income

120 19

123 24

(2%) (22%)

Rx Pharmaceuticals Adjusted Operating Income

128 61

69 20

84% 202%

API Adjusted Operating Income

48 15

37 11

28% 40%

*See attached financial schedule for reconciliation to GAAP numbers


All Category Update – 52 Weeks

6 *Vitamins, Minerals, and Supplements Source: IRI 52 Week Data Ending September 25, 2011; FDM

-2.1%

4.8%

1.2%

1.5%

2.1%

-0.1%

1.5%

2.2%

-2.4%

6.1%

-2.3%

-3.0%

-2.2%

-7.1%

-2.4%

-0.6%

9.8%

1.4%

4.6%

12.5%

14.3%

13.7%

11.0%

9.1%

-15% -10% -5% 0% 5% 10% 15% 20%

Infant Formula

Vitamins (*VMS)

Smoking Cessation

Gastrointestinal

Cough, Cold, Allergy, Sinus

Analgesics

Total OTC

Total OTC & VMS*

Store Brand National Brand Category


Consumer Healthcare Segment – Adjusted Financials* From Continuing Operations

7


31.0% 31.9% (90) bps


16.2% 18.5% (230) bps

($ in millions)% Change Y/Y Change as a %

to sales

Net Sales 412$ 396$ 4%Adjusted Cost of Sales 284 270 5%

Adjusted Gross Profit 128 126 1% (90) bpsAdjusted Operating Expenses 61 53 15%

Adjusted Operating Income 67$ 73$ (9%) (230) bps

Q1 2012 Q1 2011


• Competitive pressures on certain products

• Pre-launch investments

• Volume increases • Fairly stable pricing in

most products

• R&D developmental materials; marketing and infrastructure spend

Positive Impacts Negative Offsets


Nutritionals Segment – Adjusted Financials* From Continuing Operations

8


30.4% 33.7% (330) bps


15.5% 19.5% (400) bps


to sales

Net Sales 120$ 123$ (2%)Adjusted Cost of Sales 83 81 3%

Adjusted Gross Profit 36 41 (12%) (330) bpsAdjusted Operating Expenses 18 18 2%

Adjusted Operating Income 19$ 24$ (22%) (400) bps

Q1 2011Q1 2012

Positive Impacts


• Gaining market share in declining market

• Flat to favorable pricing in most products

Negative Offsets

• Increased cost of raw materials

• Overall product mix

• R&D investment in infant formula

• Continued SG&A optimization


Rx Segment – Adjusted Financials* From Continuing Operations

9


60.6% 43.6% 1,700 bps


47.8% 29.2% 1,860 bps


to sales


Adjusted Gross Profit 77 30 156% 1,700 bpsAdjusted Operating Expenses 16 10 63%

Adjusted Operating Income 61$ 20$ 202% 1,860 bps

Q1 2012 Q1 2011


• Favorable pricing on select products

• Paddock Labs • Production cost leverage

• SG&A leverage on increased product sales

Positive Impacts


API Segment – Adjusted Financials* From Continuing Operations

10


47.0% 46.2% 80 bps


31.7% 28.9% 280 bps


to sales


Adjusted Gross Profit 22 17 30% 80 bpsOperating Expenses 7 6 13%

Adjusted Operating Income 15$ 11$ 40% 280 bps

Q1 2012 Q1 2011


• Strong product sales • FX impact • Favorable product mix

• R&D investment in future products

Positive Impacts Negative Offsets

• SG&A leverage on increased product sales


Perrigo Updated FY12 Guidance by Segment* From Continuing Operations

11

Legend: Y/Y = Year over Year


FY 2012 Guidance Updated FY 2012 Guidance8/16/11 Conference Call 10/27/11 Conference Call

CONSUMER HEALTHCARERevenue Growth Y/Y 12% - 14% 12% - 14%Adjusted Gross Margin % 32% - 33% 32% - 33%Adjusted Operating Margin % 18% - 19% 18% - 19%

NUTRITIONALSRevenue Growth Y/Y 5% - 7% 3% - 5%Adjusted Gross Margin % 33% - 35% 31% - 33%Adjusted Operating Margin % 17% - 19% 15% - 17%

RXRevenue Growth Y/Y 55% - 57% 69% - 71%Adjusted Gross Margin % 53% - 55% 55% - 57%Adjusted Operating Margin % 38% - 40% 41% - 43%

APIRevenue Growth Y/Y 9% - 11% 9% - 11%Adjusted Gross Margin % 45% - 48% 45% - 48%Adjusted Operating Margin % 25% - 27% 25% - 27%


Perrigo Consolidated Updated FY12 Guidance* From Continuing Operations

12

Legend: Y/Y = Year over Year R&D = Research & Development Expense DSG&A = Distribution, Sales, General & Administrative Expense CAPEX = Capital Expenditures


FY 2012 Guidance Updated FY 2012 Guidance8/16/11 Conference Call 10/27/11 Conference Call

CONSOLIDATED PERRIGORevenue Growth Y/Y 15% - 18% 17% - 20%Adjusted Gross Margin % 35% - 38% 35% - 38%Adjusted R&D as % to Sales Approximately 3.5% Approximately 3.5%Adjusted DSG&A as % to Sales 12.5% 12.5%Adjusted Operating Margin % 20% - 22% 20% - 22%Effective Tax Rate 29% - 31% 27% - 29%

Adjusted Diluted EPS $4.50 - $4.65 $4.65 - $4.80

Operating Cash Flow $470M - $500M $500M - $530MCAPEX $95M - $105M $90M - $110M

New Products (consolidated) >$190M >$190MTiming over course of year 2nd half weighted 2nd half weighted


New Product Innovation – FY2012 Pipeline Publicly disclosed products

13

• $5B in branded sales potential over the next 3 years • $10B in branded sales potential over the next 5 years

Potential Rx to OTC switches

Expect to launch >45 new products, resulting in >$190M of revenue in FY 2012

OTC Pipeline Highlights Branded Sales ($M)

Generic version of Mucinex® $142

Generic version of Prevacid® $223

Generic version of Zantac® Cool Mint $36

Cinnamon Flavor Nicotine Gum $41

Generic version of Claritin® D $100

Generic version of Rogaine® Foam $59


New Product Innovation – FY2012 Pipeline Publicly disclosed products

14

• $5B in branded sales potential over the next 3 years • $10B in branded sales potential over the next 5 years

Potential Rx to OTC switches

Expect to launch >45 new products, resulting in >$190M of revenue in FY 2012

Rx Pipeline Highlights Branded Sales ($M)

Generic version of Xyzal® Solution $245

Generic version of Duac® Gel $141

Generic version of Cenestin® $30

Generic version of Clobex® Lotion $70

Nutritionals Pipeline Highlights Branded Sales ($M)

Generic version of Gerber Gentle $55


China Premium Infant Formula Partnership Founder Pharma Agreement

Chinese infant formula market ~$5BN

• Sales at higher gross and operating margins than corporate average • Sales recognition at U.S. port • Sales expected to ramp up over next 2 quarters

Non-exclusive supply agreement with sales in U.S. dollars

• New “Founder Pharma” brand to be sold in premium segment • Chongqing is where Founder Pharma’s parent, Southwest Synthetic’s,

headquarters is located • Chongqing city population >40 million • Affiliate is building the largest hospital in China (Beijing), scheduled to be

completed in 2012; currently owns 5 upper-first class hospitals • Hospital Channel – have coverage in 60% of the 900 upper first-class hospitals in

China

Founder Pharma responsible for sales, marketing, and distribution in China; initial focus on Chongqing Province

15


Appendix

16


Table I

17

PERRIGO COMPANYRECONCILIATION OF NON-GAAP MEASURES

(in thousands, except per share amounts)(unaudited)

ConsolidatedNon-GAAP Non-GAAP As

GAAP Adjustments As Adjusted GAAP Adjustments As Adjusted GAAP Adj.Net sales 725,295$ -$ 725,295$ 641,322$ -$ 641,322$ 13% 13%Cost of sales 497,716 42,362 (a,b) 455,354 427,368 7,174 (a) 420,194 16% 8%Gross profit 227,579 42,362 269,941 213,954 7,174 221,128 6% 22%

Operating expensesDistribution 10,264 - 10,264 8,333 - 8,333 23% 23%Research and development 19,638 (3,500) (c) 23,138 17,727 - 17,727 11% 31%Selling and administration 96,125 13,620 (a,d) 82,505 76,127 4,113 (a) 72,014 26% 15%

Total 126,027 10,120 115,907 102,187 4,113 98,074

Operating income 101,552 52,482 154,034 111,767 11,287 123,054 -9% 25%Interest, net 12,570 - 12,570 10,087 - 10,087 25% 25%Other expense (income), net 229 - 229 (559) - (559) - - Pre-tax income from cont. ops. 88,753 52,482 141,235 102,239 11,287 113,526 -13% 24%Income tax expense 18,295 19,620 (e) 37,915 28,561 3,615 (e) 32,176 -36% 18%Income from continuing operations 70,458$ 32,862$ 103,320$ 73,678$ 7,672$ 81,350$ -4% 27%

Diluted EPS from cont. ops. 0.75$ 1.10$ 0.79$ 0.87$ -5% 26%

Diluted weighted average shares outstanding 93,953 93,953 93,269 93,269

Gross margin 31.4% 37.2% 33.4% 34.5%Operating margin 14.0% 21.2% 17.4% 19.2%

(a) Deal-related amortization (d) Acquisition-related costs of $8,782(b) Inventory step-up of $27,179 (e) Total tax effect for non-GAAP pre-tax adjustments(c) Proceeds from sale of pipeline R&D projects

Three Months EndedSeptember 24, 2011 September 25, 2010 % Change


Table II

18

PERRIGO COMPANYREPORTABLE SEGMENTS

RECONCILIATION OF NON-GAAP MEASURES(in thousands)

(unaudited)

Consumer HealthcareNon-GAAP Non-GAAP As

GAAP Adjustments As Adjusted GAAP Adjustments As Adjusted GAAP Adj.Net sales 411,681$ -$ 411,681$ 396,104$ -$ 396,104$ 4% 4%Cost of sales 285,107 1,022 (a) 284,085 270,512 802 (a) 269,710 5% 5%Gross profit 126,574 1,022 127,596 125,592 802 126,394 1% 1%Operating expenses 62,091 1,222 (a) 60,869 54,273 1,312 (a) 52,961 14% 15%Operating income 64,483$ 2,244$ 66,727$ 71,319$ 2,114$ 73,433$ -10% -9%


NutritionalsNon-GAAP Non-GAAP As

GAAP Adjustments As Adjusted GAAP Adjustments As Adjusted GAAP Adj.Net sales 119,861$ -$ 119,861$ 122,684$ -$ 122,684$ -2% -2%Cost of sales 89,238 5,850 (a) 83,388 84,294 3,000 (a) 81,294 6% 3%Gross profit 30,623 5,850 36,473 38,390 3,000 41,390 -20% -12%Operating expenses 21,558 3,615 (a) 17,943 20,311 2,801 (a) 17,510 6% 2%Operating income 9,065$ 9,465$ 18,530$ 18,079$ 5,801$ 23,880$ -50% -22%


(a) Deal-related amortization(b) Inventory step-up of $27,179(c) Proceeds of $3,500 from sale of pipeline R&D projects(d) Acquisition-related costs of $3,156

Three Months EndedSeptember 24, 2011

Three Months EndedSeptember 24, 2011

September 25, 2010 % Change

September 25, 2010 % Change


Table II (Continued)

19

PERRIGO COMPANYREPORTABLE SEGMENTS

RECONCILIATION OF NON-GAAP MEASURES(in thousands)

(unaudited)

Rx PharmaceuticalsNon-GAAP Non-GAAP As

GAAP Adjustments As Adjusted GAAP Adjustments As Adjusted GAAP Adj.Net sales 127,627$ -$ 127,627$ 69,333$ -$ 69,333$ 84% 84%Cost of sales 84,791 34,532 (a,b) 50,259 41,561 2,459 (a) 39,102 104% 29%Gross profit 42,836 34,532 77,368 27,772 2,459 30,231 54% 156%Operating expenses 15,993 (344) (c,d) 16,337 10,017 - 10,017 60% 63%Operating income 26,843$ 34,188$ 61,031$ 17,755$ 2,459$ 20,214$ 51% 202%


APINon-GAAP Non-GAAP As

GAAP Adjustments As Adjusted GAAP Adjustments As Adjusted GAAP Adj.Net sales 47,644$ -$ 47,644$ 37,361$ -$ 37,361$ 28% 28%Cost of sales 25,791 521 (a) 25,270 20,580 492 (a) 20,088 25% 26%Gross profit 21,853 521 22,374 16,781 492 17,273 30% 30%Operating expenses 7,275 - 7,275 6,458 - 6,458 13% 13%Operating income 14,578$ 521$ 15,099$ 10,323$ 492$ 10,815$ 41% 40%


(a) Deal-related amortization(b) Inventory step-up of $27,179(c) Proceeds of $3,500 from sale of pipeline R&D projects(d) Acquisition-related costs of $3,156

% Change

% ChangeThree Months Ended

September 24, 2011 September 25, 2010

Three Months EndedSeptember 24, 2011 September 25, 2010


Table III

20

PERRIGO COMPANYFY 2012 GUIDANCE AND FY 2011 EPS

RECONCILIATION OF NON-GAAP MEASURES(unaudited)

Full YearFiscal 2012 Guidance*

FY12 reported diluted EPS from continuing operations range $3.92 - $4.07 Deal-related amortization (1) 0.52 Charge associated with inventory step-up 0.18 Charges associated with acquisition-related costs 0.06 Earnings associated with sale of pipeline R&D projects (0.03)FY12 adjusted diluted EPS from continuing operations range $4.65 - $4.80

Fiscal 2011* FY11 reported diluted EPS from continuing operations $3.64 Deal-related amortization (1) 0.34 Charges associated with acquisition-related costs 0.02 Charges associated with restructuring 0.01FY11 adjusted diluted EPS from continuing operations $4.01

(1) Amortization of acquired intangible assets related to business combinations and asset acquisitions

*All information based on continuing operations.


Table IV

21

PERRIGO COMPANYFY 2012 GUIDANCE


Full YearFiscal 2012 Guidance

ConsolidatedReported consolidated gross margin range 32.5% - 35.5% Deal-related amortization (1) 1.7% Inventory step-up 0.8%Adjusted consolidated gross margin range 35% - 38%

Reported research and development expense as % of net sales 3.4% Pipeline R&D projects 0.1%Adjusted research and development expense as % of net sales 3.5%

Reported distribution, sales, general and administrative expense as % of net sales 13.4% Deal-related amortization (1) -0.6% Acquisition-related costs -0.3%Adjusted distribution, sales, general and administrative expense as % of net sales 12.5%

Reported consolidated operating margin range 16.7% - 18.7% Deal-related amortization (1) 2.3% Inventory step-up 0.8% Pipeline R&D projects -0.1% Acquisition-related costs 0.3%Adjusted consolidated operating margin range 20% - 22%

Consumer HealthcareReported gross margin range 31.8% - 32.8% Deal-related amortization (1) 0.2%Adjusted gross margin range 32% - 33%

Reported operating margin range 17.5% - 18.5% Deal-related amortization (1) 0.5%Adjusted operating margin range 18% - 19%



Table IV (continued)

22

PERRIGO COMPANYFY 2012 GUIDANCE


Full YearFiscal 2012 Guidance

NutritionalsReported gross margin range 28.1% - 30.1% Deal-related amortization (1) 2.9%Adjusted gross margin range 31% - 33%


Rx PharmaceuticalsReported gross margin range 44.7% - 46.7% Deal-related amortization (1) 5.7% Inventory step-up 4.6%Adjusted gross margin range 55% - 57%

Reported operating margin range 30.8% - 32.8% Deal-related amortization (1) 5.7% Inventory step-up 4.6% Pipeline R&D projects -0.6% Acquisition-related charges 0.5%Adjusted operating margin range 41% - 43%

APIReported gross margin range 43.8% - 46.8% Deal-related amortization (1) 1.2%Adjusted gross margin range 45% - 48%




Table V

23


(in thousands)(unaudited)

9/24/2011

Total debt 1,199,537$ Less: Cash and cash equivalents (116,615) Total net debt 1,082,922 Total shareholders' equity 1,544,441 Total capital 2,627,363$

Net debt to total capital ratio 41.2%

Consolidated Q1 FY10Net sales 528,333$

Reported gross profit 163,212$ Deal-related amortization (1) 4,157 Inventory step-up 320 Adjusted gross profit 167,689$ Adjusted gross margin 31.7%

Reported operating income 72,129$ Deal-related amortization (1) 5,292 Inventory step-up 320 Write-off of in-process R&D 14,000 Adjusted operating income 91,741$ Adjusted operating margin 17.4%



Table VI

24


(in thousands)(unaudited)

Consolidated September 24, 2011 September 25, 2010 % ChangeNet sales, as reported 725,295$ 641,322$ 13%Less: Paddock acquisition (38,900) - Net sales, organic 686,395$ 641,322$ 7%

Rx Pharmaceuticals September 24, 2011 September 25, 2010 % ChangeNet sales, as reported 127,627$ 69,333$ 84%Less: Paddock acquisition (38,900) - Net sales, organic 88,727$ 69,333$ 28%

Net Sales for the Three Months Ended

Three Months Ended

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